If you're divorced, check beneficiaries to avoid surprises

Wednesday

Aug 7, 2013 at 12:01 AM

A recent case bears discussion, although it pertains to a family in Virginia because it concerns interpretation of a federal statute and, therefore, the same outcome could apply to Pennsylvania residents.

A recent case bears discussion, although it pertains to a family in Virginia because it concerns interpretation of a federal statute and, therefore, the same outcome could apply to Pennsylvania residents.

A unanimous U.S. Supreme Court recently decided that the Federal Employees' Group Life Insurance Act preempts a Virginia law that would have allowed a decedent's current spouse to bring an action against an ex-spouse to recover life insurance proceeds. Hillman v. Maretta No. 11-1221 decided June 3, 2013, 133 S. Ct. 928 (certiorari granted 1/11/13).

Here are the facts of the case: In 1996, Warren Hillman was married to Judy Maretta and named her as the beneficiary of his federal employee life insurance policy. They divorced in 1998. In 2002, Hillman married Jacqueline Hillman, the plaintiff in Hillman v. Maretta. Warren died in 2008 without having changed the beneficiary designation on the policy.

Maretta received $125,000 as the named beneficiary. Mrs. Hillman sued Ms. Maretta on the basis of Virginia state law that automatically revokes a beneficiary designation in a contract that provides a death benefit to a former spouse when there has been a change in the decedent's marital status.

The U.S. Supreme Court decided that the money was properly paid to Ms. Maretta since FEGLIA gives highest priority to an insured's designated beneficiary. The federal law trumped the state law.

Similarly, Pennsylvania has a statute, 20 PA C.S. §6111.2 that would nullify a former spouse's beneficiary designation.

The statute reads: "If a person domiciled in this Commonwealth at the time of his death is divorced from the bonds of matrimony after designating his spouse as beneficiary of a life insurance policy, annuity, contract, pension or profit-sharing plan or other contractual arrangement providing for payments to his former spouse, any designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse had predeceased him unless it appears from the wording of the designation, a court order or a written contract between the person and such former spouse that the designation was intended to survive the divorce."

FEGLIA would trump Pennsylvania's statue. So, word to the wise: If you are divorced, check your beneficiary designations.

Lori Cerato is a Stroudsburg attorney concentrating her practice in the area of elder law. If you would like to see a particular question covered in this column, email poconorecord.sage@gmail.com. Lori Cerato cannot guarantee a reply to every individual's query.